Are private equity firms destroying the American dream?

A few years ago, I was introduced to “Fundrise.” It seemed like a great idea. You give a small amount of money to this company. They pool all of their members’ money together, and then they buy apartment buildings together. After holding on to the buildings for awhile, they sell and you get your share plus whatever gains that the property has made.

Great idea! As a small real estate investor, I thought this sounded great.

Then I started learning the ugly truth: Fundrise was entering the single-family homes market. How did I learn this? From their own promotional materials. They started sending me materials about how the returns on single-family houses were great and how they wanted to get more into that market.

Then I found this: https://www.wsj.com/articles/if-you-sell-a-house-these-days-the-buyer-might-be-a-pension-fund-11617544801?msclkid=a5058a3fadfd11ecb50021d694d04931

What this means is that a group like Fundrise, is taking money from their members, and using it to, (in my humble opinion,) screw the American public. I can assure you that groups like this are bidding over the asking price, and are handing big chunks of money to builders or owners. Do you think that the average homebuyer or small investor can compete with them? Think again.

As a small real estate investor, I’m dealing with them as well. I recently asked my realtor to put on our listing that we wouldn’t work with hedge funds or private equity firms. She told me that she was told by the multiple listing service, in Alabama, that I could not put that info on my listing, due to anti-trust laws. ANTI TRUST LAWS!!??? What? If anyone is violating anti-trust laws, it’s these private equity firms. They are overbidding for houses, with other people’s cash. Then, they are, (arguably,) charging a premium for rents to get the best return for their investors. They are making it impossible to compete in the real estate market.

There are other groups, like Blackrock, who are scooping up single family homes for their investors. None of this bodes well for the average home-buyer or even small investors.

While I’ve recently seen debate among millenials about the advantages of renting v s. owning, I’d offer the following:

Buying your first home signals the entrance into the middle class. Real estate provides generational wealth.

Buying real estate provides stability. How?

1) Well, for one thing, some landlord in a state with poor tenant laws can kick you out. Their property value went up because of Airbnb or some other gentrification? Now they can easily kick you out. Now what? Will you be able to find affordable housing when the private equity firms are getting the highest possible returns that they can squeeze out of us?

2) The value of your property is almost always going to go up. That’s like making money without lifting a finger. Anecdotally, I’ve never lost money on holding onto real estate. The chances of real estate going down are very small.

3) Our country incentivizes home ownership by giving us a tax write-off for mortgage interest.

See? Stability!

These new hedge funds and private equity firms are the “Amazon-ing” of real estate. One or 2 groups controls all of the inventory, then it becomes impossible for young people to buy homes. Then what? Instead of rent are we paying subscription fees to live? Also, I’d love to know what happens to all of these tenants when the companies go bankrupt in the next bust cycle? Maybe the big hedge funds will be “too big to fail” and we can bail them out with taxpayer money? That’ll be a fun future.

It’s the end of generational wealth as we know it. Taken over by the oligarchs, instead of mom and pop.

So, what do we do? Well, I’d say that we say “no” to the money jerks when they come calling. But, it’s not always so easy to turn down fistfuls of cash. It’s like when Wal-Mart first came around. It was hard to resist the money. But then they destroyed all of small-town America. This is no different. These big-time money players are eyeballing your house, and your house, and your house. They have no intention of stopping. So, if you CAN turn them down, I suggest you do it.

What else can we do? Stop investing in companies that have no problem with screwing your children out of home ownership. Maybe find more ethical real-estate investment trusts?

I want my kids to be able to own their own homes. Do you?

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